(Gaming Industry Observer January 2008)

 (Editor’s note: Gaming Industry Observer — through its parent, Spectrum Gaming Group and sister company, Spectrum OSO Asia — has a fulltime presence in Macau, led by Norman MacKillop, Country Manager Macau for Spectrum Gaming Group and Spectrum OSO Asia. We will regularly provide dispatches from our professionals in Macau on issues that should be of compelling interest to our readers.)

BY NORMAN MACKILLOP

As the Asian Development Bank announced that Macau now has the third-highest gross domestic product in the developing Asia pacific, overtaking Hong Kong and beaten only by Singapore and oil-rich Brunei, a new scandal is brewing with revelations that Macau is the victim of “a colossal Vegas-style scam.”

Results of a survey of gaming industry executives conducted by the South China Morning Post suggest that the government and casinos could be losing 78 percent of gross gaming revenue due to skimming (an estimated $5 billion in tax revenue has been lost over the past five years). The head of  Macau’s Gaming Inspection and Coordination Bureau (DICJ) was quick to claim that the estimates were exaggerated, yet failed to condemn the practice and offered no promise to take action against wrongdoers.

 Skimming (off-table agreements where the high roller typically agrees with his junket operator to equal the amount that is laid on the table) is attractive to high rollers, as incentives include substantially better rebates for the bettor. Described by some “shocked and amazed” commentators as a “financial crime,” gaming executives are well aware of it.

 However, as explained by an industry source, if a casino took punitive action, the junket operator would simply take its business elsewhere. Unless the regulators bring everyone into line by pulling a few licenses, who can blame the casinos for turning a blind eye?

This situation, of course, could blow up in a very public way, posing a potentially serious threat to U.S.-based operators who must protect their gaming licenses in the states.

 The unchecked skimming is a symptom of Macau’s seemingly unbridled growth. Another symptom is the logjam to merely enter the territory. We often enter Macau from the Gung Bei Border Crossing from Mainland China. Blessed with possession of a Macau Identity card, entering the Macau side should take a few minutes in a queue and a quick swipe of the card.

 Not so, on a Sunday in mid-December. For no special reason, the Immigration Hall was packed with thousands of pushing people. Only three booths were reserved for Macau residents. A near riot occurred and the tragedy of crushed bodies was averted only by a combination of luck and the inherent sel f-discipline of Chinese people.

 Macau’s international airport is currently a relatively minor entry point for tourists compared to the immigration points at the ferry terminal and land border. Likewise, the recently opened Lotus Bridge near Cotai does not do much to relieve pressure because of its limited opening time and lack of immigration officers.

 The Immigration Department is a branch of the police in Macau, which currently faces about a 30 percent deficiency in manpower. Taking into account the salaries and incentives offered by casino companies for employees, there is not much hope for the police or, for that matter, any other government department in Macau to attract the new blood that is badly needed, or for stopping the continuing loss of current staff.

 All the ferries and aircraft in the world will not get people past severely overloaded entry points. As the new MGM Grand Macau has just opened, boosting the number of gaming tables by 9 percent and luxury hotel rooms by 8 percent, the big challenge is to increase Macau’s visitors by a similar rate. Getting them through the border could be a problem.

 Sheldon Adelson is well aware of the need for large volumes of people to keep his revenue moving upward. His plans to transport thousands from Hong Kong and China almost directly to the Cotai Strip by his newly formed Venetian Cotai Waterjets Company have recently come unstuck through a successful injunction by a Hong Kong Company, which abruptly halted that company’s opening. The Macau government’s failure to offer the route to public tender is being challenged in the courts. The interim injunction is an extraordinary robust decision for Macau’s Court of Second Instance and has important implications for Macau. Macau law requires that government contracts and concessions must be awarded by public tender unless it is “in the public interest” not to do so. Our Macau legal sources advise that, over the years, offering such contracts by public tender has been the exception rather than the rule, with obvious negative implications for good governance and avoidance of corrupt practices.

 The decision may or may not have been influenced by the trial of disgraced Ao Man Long, former Secretary for Public Works and Transport, who faces 76 counts of accepting bribes and related offenses, many of which concerned awarding of contracts without public tender. The largest corruption trial in Macau’s history ($103 million allegedly amassed in four years) heard final submissions only a few days after the ferries were halted. Perhaps, this robust display of judicial independence means that Adelson’s and the government’s legal teams will have to work much harder to convince the court that the government was yet again justified “in the public interest” to dispense with a public tender procedure.

 With the good news of Macau having joined the ranks of the top three GDPs in Southeast Asia, and MGM Grand opening its doors, the territory experienced yet another round of public demonstrations on December 20, the anniversary of the handover from Portugal. Labor union and other activists led marches to denounce, among other things, cor ruption in the government, importation of foreign labor and the government’s failure to distribute the new wealth of Macau in a fair way.

During similar protests which took place on May Day this year (dubbed the May Day Riots) a panicking police officer opened fire, injuring a passing motorcyclist. On this occasion the demonstrations were peaceful. Activists claimed 3,000 participants, police claimed half that amount and independent observers claimed somewhere in between the two.

The Ao trial has certainly tarnished the glitter of new casino openings and Macau’s economic successes in 2007. But it seems to have awakened public awareness of the need for good clean government as Macau joins the ranks of Asia’s top economies. Ao certainly dominated the news in 2007.

 However, many of Macau’s elite who have not already fled are waiting for a knock on the door as those who allegedly bribed him have yet to be brought to trial. Perhaps Au will continue to dominate the news in this year.